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# In the economic order quantity (EOQ) model, if the holding cost and the ordering cost both double, the value of Q* will: decrease by 50%. remain...

1. In the economic order quantity (EOQ) model, if the holding cost and the ordering cost both double, the value of Q* will:
a. decrease by 50%.
b. remain unchanged.
c. double.
e. None of the above
2. In the basic economic order quantity (EOQ) model, if monthly demand is a constant 430 units, the order quantity is 144 (12 dozen), and the firm operates during 50 five-day weeks a year, the cycle time will be approximately :
a. 7 working days.
b. 10 working days.
c. 12 working days
d. 84 working days.
e. None of the above.
3. Consider a basic economic order quantity (EOQ) model with the following characteristics:
Item cost: \$15
Item selling price: \$20
Monthly demand: 500 units (constant)
Annual holding cost: 9% of purchase cost
Cost per order: \$18
Firm's work year: 300 days (50 weeks @ 6 days per week)
Safety stock: 15% of monthly demand
The optimal Order Quantity, Q* is
a. 115
b. 223
c. 400
d. 1549
e. None of the above
4. The annual demand for inventory item XX67J is 6000 units. Order lead time is 6 workdays, and the firm's "year" is 300 days (6 workdays weekly, times 50 weeks). Empirical analysis indicates that the daily standard deviation of XX67J demand is 4 units. If the firm desires only a 5% chance of a stock-out, during any inventory cycle. What is the corresponding safety stock level (rounded to the nearest integer)?
a. 8
b. 16
c. 18
d. 40
e. None of the above
5. Garner is your sole supplier of GR-2.  Formerly, you ordered from Garner 800 units monthly, to meet an annual need (demand) for 9600 units. Purchase cost was \$3.00 per unit. Now, however, Garner is offering discounts of 7% on orders of 1500 or more, and 15% on orders of 3000 units or more. Orders are placed and filled at a cost of \$32 per order. Inventory holding cost is estimated at 20% of purchase cost, per item, per year. Under the new discount plan, what is your best strategy?
a. Order 1012 units
b. Order 1098 units
c. Order 3000 units
d. Order 3825 units
e. None of the above
6. Which of the following statement is incorrect?
a. Inclusion of quantity discounts may influence both the order quantity and the reorder point.
b. Quantity discounts reduce the unit price.  Inventory costs are always reduced by opting for a quantity discount.
c. If Q* is d. All of the above (a, b, c)
e. None of the above
7. Which of the following statement is incorrect?
a. When compared with the maximum inventory level of the economic order quantity (EOQ) model, the maximum inventory level of the production lot size model is smaller
b. For the production lot size model to be appropriate, the relationship between D, annual demand, and P, maximum annual production rate, must be D c. At Q*, annual production setup costs exceed annual holding costs
d. All of the above (a, b, c)
e. None of the above
8. TV King sells Nison P-42 LCD TV. Demand for TV averages 60 units per month. Nison P-42 costs \$1,200 each. Assuming the annual holding cost is \$500. If King is out of stock, it offers customers a discount of \$15 per week. The cost of placing an order is \$1200. The administrative cost of placing a costumer on backorder is estimated to be \$20. The planned shortage inventory model recommends order quantity Q* = 70 and shortage level S = 18. Which of the following statement is incorrect?  (all numbers are rounded to nearest integer)
a. Annual inventory holding cost is \$17,500
b. Assuming TV King operates 365 days a year,  there will be 272 days TV King has Nison P-42  in stock
c. Time-independent shortage cost is \$2,777
d. Time-dependent shortage cost is \$2,407
e. None of the above
9. Weekly Demand of mini furniture set at Play House Co. is 40. An order takes two weeks to arrive. The company wants order to arrive when there are 50 back orders. The order should be placed when
a. there is no more inventory and no back order
b. there are 30 units left in inventory
c. there are 30 back orders
d. there are 50 units left in inventory
e. None of the above
10. Beauty Bar Soap is produced on a production line that has an annual capacity of 60,000 cases. The annual demand is estimated at 26,000 cases. The weekly demand is normal distribution with µW = 500 and W = 40.  Each setup of production line cost approximately \$135 and takes 1 week. The manufacturing cost per case is \$4.50 and the annual holding cost is figured at 24% rate. Assuming the company operates 52 weeks a year and wish to maintain a 98% cycle service level. What is annual safety stock cost (rounded to dollar) under optimal order quantity and reorder point?
a. \$89
b. \$370
c. \$629
d. \$2,073
e. None of the above
11. Suppose that an office has one secretary who can put up to two callers on hold while speaking to a third caller. (If two callers are on hold, additional callers will get a busy signal and will not call back.) If the arrival rate of calls follows a Poisson distribution with a mean rate of 20 per hour and the average length of a telephone conversation is 2 minutes, the average number of callers who will be on hold is approximately:
a. 2.0000
b. 1.3333
c. 1.0154
d. 0.4308
e. None of the above
12. Which of the following is not a common steady state performance measure?
a. The probability that a customer have to wait in the queue.
b. The average number of customers who do not have to wait in the queue.
c. The probability all servers are idle.
d. The average time a customer spends between entering and leaving the system.
e. None of the above
13. Dr.  Anderson's office hour is from 2:30 to 4:00 every Monday. Students arrive at his office according to a Poisson distribution at a mean rate of 4 per hour. What is the probability that there will be more than 6 students during a Monday office hour session?
a. 0.1606
b. 0.3937
c. 0.5000
d. 0.6063
e. None of the above
14. The maintenance department has two mechanics, each of whom will cost the company \$25 per hour and would work separately. Each of them can repair four units of heavy equipment per 8-hour day. Currently, there is an average of four units of heavy equipment requiring daily repair (assuming Poisson arrival). A unit of heavy equipment not in operation costs the company \$40 per hour, since the company must lease alternative equipment. The daily queuing related cost is approximately
a. 103.33
b. 506.67
c. 734.55
d. 826.67
15. The Red Rock School District has six buses in its fleet. The time between bus failures follows an exponential distribution with a mean of twenty days. During the time a bus is out of commission, the district must lease another bus at a cost of \$80 per day.
The district is considering hiring Tom to handle maintenance. It is estimated that Tom can repair a bus in an average of 10 hours, and Tom wants a salary equivalent to \$160 per working day. A working day lasts 8 hours, and there are 200 working days per year. What is the daily cost if Tom is hired?
a. 165.33
b. 182.40
c. 197.86
d. 540.12
e. None of the above
16. For an M/G/1 queue, λ = 12 per hour, μ = 24 per hour, and the standard deviation of the service time σ = .05 hour.  Which of the following statement is incorrect?
a. The average number of customers in the system = 1.11
b. The average time a customer spends in the system = 0.0925 hours
c. The probability that a customer does not have to wait = 0.5
d. The probability that there are exactly two customers in the system = 0.050
e. None of the above
17. Charlestown Electric Company is building a new generator for its Mount Washington Plant. Even with good maintenance procedure, the generator will have periodic breakdowns. Historical data for similar generators indicate that the relative frequency of breakdowns during a year is as follows:
Number of Breakdowns Relative Frequency
0 0.80
1 0.15
2 0.04
3 0.01
We map the random numbers in ascending order of number of breakdowns. Given a 2-digit random number 88, and using the VLOOKUP function, the number of breakdowns next year is.
a. 0
b. 1
c. 2
d. 3
e. None of the above
19. DVD King sells Toshiba XD-250 DVD players. Each day between 0 and 4 customers arrive to purchase these dishes with the following probability distribution:
Number of Customers Probability
0 0.15
1 0.30
2 0.25
3 0.20
4 0.10
Assuming there are 30 units currently, using the following 2-digit random numbers, at the end of what day will DVD Kings sell out all Toshiba XD-250?
Day RN
1 15
2 99
3 47
4 97
5 39
6 22
7 8
8 75
9 11
10 76
11 29
12 0
13 26
14 68
15 44
a. Day 5
b. Day 8
c. Day 11
d. Day 12
e. None of the above

20. Price changes of shares of Ralph Inc. have been recorded over the past 100 days. The frequency distribution is as follows:
Price Change Probability
- 1/2 0.06
- 3/8 0.08
- 1/4 0.10
- 1/8 0.12
0     0.20
1/8 0.24
1/4 0.08
3/8 0.06
1/2 0.06
If the current price of Ralph stock is \$30, use the following computer generated random numbers for simulation:
Day RN
1 0.089298419
2 0.917799699
3 0.353414983
4 0.226025249
5 0.368686094
6 0.079393032
7 0.663184808
8 0.783597511
9 0.674174677
10 0.050971983
What is the stock price at the end of day 10?
a. \$29.125
b. \$29.750
c. \$30.250
d. \$32.000
e. None of the above

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